The deal would create the nation's largest utility in terms of customer base, and position the combined company as a major competitor as California and other states open their electricity markets to competition.

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In approving the merger, the commission ordered both companies to divest some operations to allow fair competition in the deregulated electricity market scheduled to begin Tuesday.

Southern California Gas supplies natural gas to 100 gas-fired utility generators in Southern and Central California, or 96 percent of the total, and provides the only intrastate transmission service to those generators.

The commission ordered San Diego Gas & Electric to sell its gas-fired generating plants and ordered Southern California Gas to sell its options to acquire the portions of two key gas pipelines.

"Clearly, the utility's service is influential to its affiliates and nonaffiliates which will soon be competing in the electricity market," the commission said in a statement.

The commission also said the companies must reduce their projected merger costs from $202 million to $148 million. Cuts included $20 million in executive bonuses that the companies planned to include in the transaction costs, the commission said.

The new company, which would be known as Sempra Energy, would have about 6 million customers ranging from Los Angeles to the Mexican border and revenues of $4.5 billion.

The new company probably has more customers than PG&E subsidiary Pacific Gas and Electric Co. but not as much revenue. PG&E has 4.5 million electric customers and 3.5 million gas customers, many of whom in that combined customer base overlap.

PG&E's annual revenues from the gas business are $1.8 billion, but its total revenues, including those from electric customers, are $9.4 billion.

Southern California Gas and San Diego Gas & Electric would continue to operate separately without name changes.

Combining the two under one parent will produce a company with an overall market value of $5.2 billion.

Stephen L. Baum, president and chief executive officer of San Diego-based Enova, will be Sempra's vice chairman, president and chief operating officer. Baum will become CEO two years after the effective date of the merger, and become chairman by September 2000, when Farman is scheduled to retire.